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Transactional innovation as performative action: transforming comparative advantage in the global coffee business

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Abstract

We present a theory about the role of transactional innovation in transforming comparative advantage of countries into competitive advantage of firms in international trade. We test this theory in analyzing one case study, the shift of parts of the Brazilian coffee business from the commoditized to the de-commoditized regime that was triggered by one single Italian quality coffee company. New transactional capabilities created by entrepreneurial action allow performing comparative advantage in novel ways, thus changing the social ontology of international trade as embodied in particular products, such as coffee beans.

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Notes

  1. The Illycaffè contribution to the decommoditization of Brazilian coffee is virtually unknown in the literature published in English. There are a few papers in Portuguese published in Brazilian journals or appeared as working papers (Saes et al. 2006; Saes and Nakazone 2003; Neves et al. 2003; Saes et al. 2007). These papers however do not focus on decommoditization.

  2. Source Illycaffè: personal communication.

  3. Aldir Texeira, Director Assicaffe’, our interview 21/11/2007, Sao Paulo, SP, Brazil.

  4. Brazilian Award of Quality Coffee via Espresso. In 2008 it was renamed after the late Dr. Ernesto Illy: Prêmio Ernesto Illy de Qualidade do Café para Espresso.

  5. Luis Norberto Pascoal, (our interview 26/11/2007, Campinas, SP) Chairman of DaTerra, one of the biggest coffee companies in Brasil: http://www.daterracoffee.com.br/#/ids-home.

  6. Initially, the partners were: (1) ADS (Assessoria de Comunicações), a public relations company that managed the organization of the award, public relations for Illycaffè in Brazil, the suppliers’ club and other image-related initiatives (http://www.adsbrasil.com.br/english/index.asp); (2) Porto De Santos, an exporter that managed relationships with farmers after quality assessments (http://www.portosantos.com.br/?page=empresa); and (3) Assicafe’, a quality analysis laboratory that relays quality criteria as demanded by final markets to producers and acts to match quality criteria with the technical and agronomical capabilities of the producers (http://www.assicafe.com.br/site/). Later on, when Illycaffè launched the knowledge management program (see following section) it partnered with PENSA (Program of Studies of the Agro-Industrial System Business at the São Paulo University, which manages the Coffee University and technical knowledge transfer to farmers.

  7. The bag is the standard measure of green coffee. It corresponds to 60 kg.

  8. Data provided by Illycaffè.

  9. Entirely bought by Illycaffé, who was, at the time, the only buyer of quality coffee in Brazil.

  10. The Zona da Mata is a high-humidity mountain area, where the dry exsiccation method, typical of Brazil, produces a fermented coffee known as rio or riado, the worst quality in Brazil. Coffee processed by an alternative method, semi-washed, was not admitted to the illy Award contest before 1999. However, it turned out that the ZdM semi-washed coffee was excellent and went on to win several awards. The excellent showing of ZdM coffee triggered wider adoption of the semi-washed processing method and related technology. Although the semi-washed technology had been known in the ZdM at least since the 1960s, its diffusion had been blocked by the lack of channels for quality coffee. “In the 1970s the first machines [semi-washed processing machines, known as CD process from the Portoguese Cereja Descasgado] arrived here. A few producers had the machines. But the producers didn’t get any additional market. In the 1990s many people abandoned the CD process, as it didn’t yield any premium.… When illy arrived in the 1990s and bought large quantities of coffee, it compensated for the additional work. So the process was already there but it was illy that made it happen. To invest in quality, to buy the machines, to invest in despolpamento and much more” (Vicenti Faria, our interview, 22/04/2009, Manhuaçu, MG, Brazil).

  11. See footnote 10

  12. In Brazil the value of a coffee lot is determined by a quality assessment based on tasting (the technical term is cupping) a drink prepared from freshly roasted beans. The preparation of the drink (called bebida in Portuguese) and the classification of the tastes follow standards that change from country to country (although international bodies, such as, the International Coffee Organization―ICO―provide uniform classification standards and procedures). In Brazil the drink quality is classified according to three major classes and related subclasses based on coffee fragrance (its aroma) and taste; these are:

    Bebida dura: coffee characterized by a sour, astringent and harsh taste, but without any strange connotations to the palate.

    Bebida mole: coffee characterized by a pleasant, mild and sweet flavor taste and aroma.

    Bebida riada: coffee characterized by an unpleasant taste reminiscent of chemical products such as iodoform.

  13. Cerrado Mineiro in the state of Minas Gerais is a relative newcomer in the Brazilian coffee producing geography. City dwellers, would-be entrepreneurs fascinated by the dream of becoming landowners, and producers abandoning frost-exposed traditional coffee producing regions started moving to Cerrado in the 1970s. They brought a more entrepreneurial attitude and innovated coffee agriculture by investing in mechanization, irrigation and fertilization, which were necessary to produce in the Cerrado’s savannah-like climate.

    For the first 9 years (1991–1999) of the Award, about 80 % of the total Illycaffè’s purchases came from Cerrado’s, going from about 57 % in 1991 to over 90 % in 1999; Source: Illycaffè.

  14. Over the same period (1991–1999) traditional coffee producing regions located in the states of São Paulo (SP) and Paraná played a marginal role in Illycaffè’s purchases: SP’ average contribution to Illycaffè’s purchases over the same period amounted to 8 % of total, whereas Paraná counted for less than 2 %. Standard deviations are small, about 4 % for SP and about 1,4 % for Paraná; Source: Illycaffè.

  15. Illycaffè’s supplier base grew from a few before 1991 to several thousand in the late 90s.

  16. From a minimum of 16 bags to a maximum of 1007 (source: Illycaffè).

  17. Aguinaldo Jose da Lima, farmer and first President of CACCER; our interview 02/03/2008, Patrocinio, MG, Brazil.

  18. Francisco Sergio de Assis, farmer and president of CACCER (in 2008), our interview 03/03/2008, Monte Carmelo, MG, Brazil.

  19. Alejandro (surname not registered), our interview, 22/04/2009, Manhuaçu, MG, Brazil.

  20. Interview with Alessio Colussi, former head of the Green Coffee Department at Illycaffè: two professors manage the program. Every year we establish a knowledge transfer plan covering needs that emerge from our conversation with farmers and from knowledge of Brazilian Universities (involved in the program]. Itinerant courses are organized in relevant coffee producing Brazilian areas. We cover several subjects, how to calculate and monitor production costs, production techniques, post-harvest processing, etc. Over 6000 farmers have participated to the Unilly courses. Data: Illycaffè.

  21. See footnote 10.

  22. The first association in the ZdM was formed in 2000: ‘when we started selling large volumes to illy and were selected among the top 50 [finalists at the Award], a group of producers, having in mind to produce quality, launched the association … it was the illy award that … [led to] the association’ (Vicenti Faria, Table 4).

  23. Francisco Sergio de Assis, ibid.

  24. Conselho das Associações dos Cafeicultores do Cerrado (Council of Associations of Cerrado Coffegrowers).

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Authors and Affiliations

  1. Kedge Business School, Marseille, France

    Pierpaolo Andriani

  2. Witten/Herdecke University, Witten, Germany

    Carsten Herrmann-Pillath

Authors
  1. Pierpaolo Andriani
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  2. Carsten Herrmann-Pillath
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Correspondence to Carsten Herrmann-Pillath.

Appendix: a methodological note

Appendix: a methodological note

The data presented in this article were collected by one of the authors (PA) during three fieldwork trips to Brazil and several visits to institutions and companies in Italy between 2006 and 2009. During this period we collected about 20 interviews. The fieldwork involved visits to several coffee farms in three Brazilian states and coffee institutions. We attended one Illycaffè Award ceremony in Sao Paulo. The agents were selected via snowball techniques starting from the lead firm at the top of the value chain—Illycaffè—to the farmers at the bottom. The farmers we interviewed were all involved in quality coffee production and had at various times been Illycaffè suppliers. In addition to the interviews, we collected a large variety of documents and files. Of particular importance were two dataset: first, Illycaffè’s Brazilian purchases with related geographic coordinates. This allowed us to document the spreading of quality. Second, the financial accounts of a primary producer firm. We collected secondary data from public and business sources. We obtained the dataset of all Brazilian newspaper and magazine articles that mentioned Illycaffè, about 750 articles covering the period 1991–2007. The secondary material provided an invaluable source of unbiased information.

We chose a case study approach for two reasons. First, scarcity of data about the quality coffee sector both at the aggregated (see footnote 1) and at local level. In particular, quantitative data concerning the 1990s period (covered in this paper) are virtually absent. Moreover, given the small percentage of quality coffee produced compared to commodity in the 1990s, absent information about transaction price, the attempt to extract patterns about quality coffee transactions from the aggregated data is virtually impossible. Some quantitative evidence can be gathered by analyzing the books of farmers and roasters where price information is available. Although these data are generally not easily available, we managed to collect the dataset detailing financial transaction data from one local producer and from Illycaffè. Second, a case study approach seems an appropriate methodology to document and analyze a case of performativity. The materiality of the construction of a new transactional regime in its sociological, cognitive, linguistic and temporal dimensions is more easily described via a narrative of micro-events.

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Andriani, P., Herrmann-Pillath, C. Transactional innovation as performative action: transforming comparative advantage in the global coffee business. J Evol Econ 25, 371–400 (2015). https://doi.org/10.1007/s00191-014-0388-y

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